Cummins Inc.
(
CMI
) posted a profit of $548 million or $2.86 per share in the fourth
quarter of 2011 compared with $362 million or $1.84 per share in
the same quarter of 2010. Excluding special items, the company
recorded a profit of $491 million or $2.56 per share, surpassing
the Zacks Consensus Estimate of $2.24 per share.
Revenues in the quarter grew 19% to $4.9 billion driven by
higher demand in trucks, construction, power generation and oil and
gas markets in North America as well as strong growth in global
mining markets. However, these were partially offset by weaker
demand in the construction market in Chinaand the same for power
generation in India. Revenues were higher than the Zacks Consensus
Estimate if $4.8 billion.
Earnings before interest and taxes (EBIT) were $768 million in
the quarter compared with $541 million in the fourth quarter of
2010. Excluding special items, EBIT was $677 million or 13.8% of
sales in the quarter.
Segment Accomplishments
Sales in the
Engine
segment appreciated 23% to $3.1 billion. The increase in revenues
was attributable to higher demand for on-highway heavy duty,
midrange and light duty engines in North America and strong demand
for oil and gas engines in North America and mining engines
globally. Segment EBIT was $368 million, or 12.0% of sales, versus
$256 million, or 10.3% of sales, in the fourth quarter of 2010.
Sales in the
Component
segment escalated 19% to $1.1 billion driven by higher demand in
North America, Europe, Indiaand Brazil that more than offset weaker
demand in China. Segment EBIT was $132 million, or 12.1% of sales,
compared with $83 million, or 9.0% of sales
Sales in the
Power Generation
segment inched up 2% to $920 million. The increase was driven by
higher sales of commercial products due to stronger demand in most
regions as well as higher demand in North America, China and
Europe. Segment EBIT was $87 million, or 9.5% of sales, compared
with $92 million, or 10.2% of sales.
Sales in the
Distribution
segment scaled up 19% to $834 million driven by strong growth in
Asia-Pacific region, higher demand for power generation in North
America as well as in oil and gas and mining markets. Segment EBIT
was $87 million, or 10.4% of sales, compared with $82 million, or
11.7% of sales.
Annual Results
For full year 2011, Cummins reported a profit of $1.85 billion
or $9.55 per share, up from $1.04 billion or $5.28 per share in
2010. Excluding special items, the company's profits were $1.75
billion or $9.07 per share, exceeding the Zacks Consensus Estimate
of $8.72 per share.
Revenues in the year surged 36% to $18 billion due to strong
growth in most geographic regions. It was higher than the Zacks
Consensus Estimate of $17.8 billion.
EBIT for the year, excluding special items, was $2.56 billion or
14.2% of sales, compared with $1.66 billion or 12.5% of sales in
2010.
Financial Position
Cummins had cash and cash equivalents of $1.5 billion as of
December 31, 2011 compared with $1.0 billion at the end of fourth
quarter of 2010. Besides, total long-term debt at the end of 2011
was $658 million versus $709 million at the end of 2010.
Cash flow from operating activities improved to $2.1 billion in
2011 from $1.0 billion in the prior year. Capital expenditures
nearly doubled o $622 million from $364 million in 2010.
Guidance
Cummins anticipates revenues to go up by 10% in 2012. It also
expects EBIT in the range of 14.5% to 15% of sales during the year.
With this, the company expects to reach its target of achieving $30
billion in sales and 18% EBIT in 2015.
Our Take
Cummins is well positioned to benefit from several trends, such
as new emission standards, fuel economy improvement and favorable
trends for its Power Generation business. New emission regulations
provide lucrative opportunities for the company.
However, we are concerned about the strengthening U.S. dollar,
macroeconomic environment around the world and tough competitions
with companies including
Caterpillar Inc.
(
CAT
) and
Navistar International
Corporation
(
NAV
). As a result, the company retains a Zacks #3 Rank on its stock,
which translates to a short-term (1-3 months) rating of Hold.
CATERPILLAR INC (
CAT
): Free Stock Analysis Report
CUMMINS INC (
CMI
): Free Stock Analysis Report
NAVISTAR INTL (
NAV
): Free Stock Analysis Report
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